Patent box

Overview and introduction to the old and new regimes

Companies have been able to elect to enter the patent box regime since 1 April 2013. Any company within the charge to UK corporation tax with income from patents (and any other specified intellectual property) will, subject to phasing-in rules, potentially be able to benefit from an effective corporation tax rate of 10%.

Old regime

The old regime applies to patent box claims made for periods ended after 1 April 2013 which do not fall into the provisions of the new regime, discussed below.

Patent box relief was phased in over four years, with relief being fully available for relevant earnings for FY17.

For relevant earnings arising during the phasing-in periods, it is necessary to apply the percentage applicable to the relevant financial year to those earnings.

The percentages are:

1 April 2013 to 31 March 2014: 60%
1 April 2014 to 31 March 2015: 70%
1 April 2015 to 31 March 2016: 80%
1 April 2016 to 31 March 2017: 90%

From 1 April 2017, all relevant earnings may benefit from the patent box provisions.

New regime

Under the new patent box regime, it is necessary to calculate a stream for every individual Intellectual Property right. For example, if a company has five patented products, then there will be five streaming calculations in which income and expenditure are allocated to each stream. Once the relevant taxable trading profits for each stream have been calculated, a nexus fraction is applied. The sum of the streams is used to arrive at the Patent box deduction calculation.

When does the new regime apply?

Companies already elected into the old patent box rules or that elect within normal time limits for a period preceding 1 July 2016 may continue to benefit under the old regime by 'grandfathering provisions' until 30 June 2021.

Companies that are likely to generate income after the end of the old regime (30 June 2021) will be required to enter the new regime from 1 July 2016. Under the new regime, companies will need to track and trace their Research and Development expenditure for each Intellectual Property (IP) right from 1 July 2016 for up to 20 years. This is known as the 'Streaming by IP asset, product or product family' approach.

IP rights applied for after 30 June 2016 or created before 30 June 2016 but not elected into the 'Grandfathering provisions' will fall within the new regime.

Old and new Intellectual Property

Companies with both old and new Intellectual Property will be required to identify the qualifying income for old and new patents respectively and to apply the appropriate rules to each.

How the claim is made

There is no section on the Company Tax Return to enable you to claim a Patent Box deduction. Instead, the reduced 10% rate is claimed by subtracting an additional trading deduction from the company’s profits.

Entering patent box income

From UK trades, select Edit for the trade for which you are claiming the Patent Box deduction.
Tick Patent box trade this period. This will add the Patent box deduction row in the Adjustments section towards the bottom of the page.
Click on the green figure alongside Patent box deduction. This will open the Patent box deduction tab in periods of account starting before 01/04/2021 and the Patent box screen in periods of account starting on or after 01/04/2021.

Qualifying residual profit/(loss)	Enter the amount of trading income which qualifies as Patent box income.
Step 5: Small claims deduction	If the company is eligible for a small claims deduction and the Elect for small claims deduction box is ticked, then the Small claims deduction figure will appear here.
Step 6: Marketing assets return	The figure here is calculated at Step 6: marketing assets return, towards the bottom of the page.
Step 7: Profits arising before patent granted	Use this box to include profits arising before the relevant patent was granted.
	A company which has been granted a patent (or exclusive rights in relation to a patent) can, in the accounting period in which the patent was granted, elect to obtain the benefit of the Patent Box on profits arising from exploiting the patented invention during the period between the application for the patent and the granting of the patent. This is the patent pending period. The relief itself is given by adding an amount to the company’s relevant Intellectual property (IP) profits in the accounting period in which the patent is granted.
Sub total	This box aggregates the figures above it.
Set off amount: Relief this period	Displays the amount calculated at Relief this period, within Set off amount.
Relevant IP profit before allocations/(loss)	Calculated as Sub total, less Set off amount: Relief this period.
Patent box inter-trade claim	If the company has both a loss-making and profit-making Patent box trade, then the Patent box loss for the period must be set off against the Patent box profit, as far as possible. Use this box to adjust the Patent box profit to take into account this loss.
Patent box group claim	If the company is a member of a group which includes a company with a loss-making Patent box trade which cannot be set-off by a Patent Box inter-trade claim, then the Patent box loss must be set off against Patent box profits of other group members, as far as possible. Use this box to adjust the Patent Box profit to take into account any such group loss to be relieved by this company. The Patent box group claim box will only be active if the figure of 51% group patent box companies is greater than one.
Relevant IP profit/(loss)	Calculated as Relevant IP profit before allocations/(losses), less adjustments for any Patent box inter-trade claim and Patent box group claim .

Step 6: Marketing assets return

NMR less AMR	Enter the amount by which Notional marketing royalty (NMR) exceeds Actual marketing royalty (AMR). The figure may be positive or negative.
AMR exceeds NMR	Displays as a positive figure any negative amount entered at NMR less AMR
NMR exceeds AMR by up to 10% of QRP	If the figure entered at NMR exceeds AMR is positive and either: Qualifying residual profit (QRP) is a loss; or Qualifying residual profit is a profit which is greater than 10 times the amount at NMR exceeds AMR, then the amount shown here will be NMR exceeds AMR, displayed as a negative number.
Marketing assets return	Calculated as the sum of the three values immediately above it.

Set off amount

Amount b/f	Shows the amount brought forward from the previous period, if this has been set up in the software. You are able to amend this figure.
Phase-in adjustment	Where the brought forward amount is subject to a Phase-in adjustment, enter the amount here.
Relief this period	Shows the brought forward amount to be relieved this period.
Relevant IP loss this period	Where Relevant IP profit/(loss) shows a loss, then amount of the loss will also appear here.
Patent box inter-trade surrender	If there is a Relevant IP loss this period, enter here the amount of the loss set against patent box profits of any other trades of the company.
Patent box group surrender	If there is a Relevant IP loss this period, enter here the amount of the loss set against patent box profits of any other group companies.
Amount c/f	Calculated as the Amount b/f not relieved or surrendered in this period.

Step 5: Small claims deduction

Total QRP for patent box trades	Shows the total profits of all the trades of the company marked as patent box trades.
51% group patent box companies	Enter the maximum number of companies in the group during the period.
Patent box trades	Shows the number of other trades of the company identified as patent box trades.
Adjusted relevant maximum	Shows the relevant amounts for each Financial year relevant to the accounting period, proportionately reduced for periods of less than 12 months.
Adjusted small claims threshold	Shows the relevant amounts for each Financial year relevant to the accounting period, proportionately reduced for periods of less than 12 months.
Step 6 previously used	Leave unticked if the company has either: Never made a deduction under Step 6: marketing assets return; or In the past four years has not made a deduction under Step 6: marketing assets return because the figure is nil or not greater than 10% of the Qualifying Residual Profit.
Eligible for small claims deduction	This box will be ticked if Total QRP for patent box trades is less than the small claims limit, currently £1,000,000.
Elect for small claims deduction	Select, if the Eligible for small claims deduction box is ticked and you are electing for small claims deduction.
Small claims deduction	If Elect for small claims deductions is ticked, the amount of the deduction will appear here.

Entering new regime patent box income

Important: Do not use the Patent Box Result tab to enter details of new regime relevant income.

In periods of account starting before 01/04/2021

From the Patent Box Deduction tab, click on the green figure on the Amount attributable in period after 30 June 2016 row. Streaming by IP Asset Calculation screen opens.

In periods of account starting on or after 01/04/2021

From the Patent box screen, click on the green figure on the Relevant IP profit attributable under profit streaming method. Streaming by IP Asset Calculation screen opens.
Click Add to create the number of rows you require.
On each row, enter a reference and description for each Intellectual Property (IP) stream and the relevant Nexus profit or (loss) figure.

Note: The Nexus profit/(loss) is the profit/(loss) arising from the R&D activities attributable to the particular IP stream, multiplied by the Nexus fraction.

Details of each IP stream must be entered on its own individual row.

Entering old regime patent box income

Open the Patent Box Result tab

Important: Only use the Patent Box Result tab to enter details of patent box income dealt with under the old regime. Do not use the tab for new regime income

Note: A company with a relevant IP loss (RIPL) will not benefit from the patent box relief. Instead, the company must set off the RIPL against other of its, or its group's, profits for the current or future accounting period.

The sum of the Nexus profits appears at Amount attributable in period after 30 June 2016, at Patent Box Deduction. A more detailed report is available at Quick Links> Return & Computations, as B17: Patent box